Save Article

Uh-Oh: Yawning Chasm of Death Opens Between Stocks and Bonds

By

Matt Phillips

Jan 12, 2012 10:11 am ET

Thomson Reuters

The S&P 500 (yellow) has been merrily moving higher, even as the yield on the 10-year note (blue) remains low. Worrisome?

Look out U.S. stock investors. Once again a big gap is opening up between prices for stocks and yields for U.S. Treasurys. Stocks have been moving higher since October. That’s usually a sign of economic optimism. At the same time, yields on bonds have stayed really low. That’s usually a sign of economic pessimism.

True, there are any number of reasons for investors to keep bond yields low. (That means prices for bonds are high, as prices and yields move in the opposite direction.) One thing investors have to remember is that the Fed is pushing long-term interest rates lower through its Operation Twist program, which isn’t expected to end until June.